Brookfield’s Global Ambition Drives $8.6 Billion Australian Deal

October 22, 2015 5:39 pm

Brookfield’s global ambition drives $8.6-billion Australian deal

By Jacqueline Nelson

Brookfield Infrastructure Partners LP is acquiring Australian port and rail systems in one of the largest infrastructure deals this year, aiming to create a competitive international transport heavyweight.

The Hamilton, Bermuda-headquartered global infrastructure investor said Monday that it would take a majority stake in Melbourne-based Asciano Ltd. in a deal worth $8.6-billion, plus debt.

Brookfield Infrastructure, managed through Toronto-based Brookfield Asset Management Inc., envisages using its target’s assets to build two new global platforms.

Asciano’s rail business, called Pacific National, has 664 locomotives hauling tonnes of coal, steel and other commodities. Brookfield Infrastructure would combine this with its existing Australian and Brazilian rail and logistics operations to form a bigger business.

Asciano’s port assets, called Patrick, are made up of a network of container terminals, port operations and supply chain support. “Combining Asciano’s Australian container terminals with our existing assets in North America and Europe provides the foundation for a global container platform,” Sam Pollock, chief executive officer of Brookfield Infrastructure, said in a statement.

Brookfield indicated that fusing these operations and expertise will build scale that can help diversify its customer base across new parts of the world, according to an overview of the deal released Monday.

Unlike some infrastructure assets, the profits of transport systems depend heavily on the strength of related economies, trade flows and ability to attract international clients. Global shipping practices have also been evolving in recent years, with many larger vessels that require deeper ports coming to market. That has spurred some port operators to upgrade their systems.

By the end of Asciano’s fiscal 2016 year, the company will have spent about $2-billion on new infrastructure with locomotives, cranes and improved automation within five years. And Brookfield has invested $1.2-billion developing its existing 5,500-kilometre rail freight network in the southern half of Western Australia in the past five years.

Brookfield’s investors have had time to digest the prospects of the acquisition since late June when its regulatory requirements prompted it to disclose its pursuit of Asciano.

Mr. Pollock said in a conference call at the time that he saw potential to “take advantage of a lot of knowledge about where those various challenges exist for customers – both from a capital perspective and just from an efficiency perspective” in the Australian market. He also said that the combined business lines would aim to generate value by developing new solutions for moving goods seamlessly by multiple transportation methods, such as by sea, land and rail.

Other institutional investors in Canada have expressed an interest in Australian infrastructure in recent years as state and federal governments in the region pursue privatizations of infrastructure. The country has launched an “asset recycling” program to sell government-owned ports, power lines and other assets to the private market. Pension funds such as the Caisse de dépôt et placement du Québec have acquired ports in the region, and others, such as the Ontario Municipal Employees Retirement System, have expressed heightened interested in Australian infrastructure.

Brookfield will have a 55-per-cent stake in Asciano. Another 23 per cent will be held by Brookfield-sponsored and managed funds, and two unnamed institutional partners holding will each have 11-per-cent stakes.

The deal is structured so that publicly traded Asciano’s shareholders will receive $6.94 Australian ($6.70 Canadian) in cash and 0.0387 Brookfield Infrastructure units for each share in the company. Brookfield plans to list its units on the Australian Securities Exchange, called the ASX, in addition to its Canadian and U.S. listings.